Stakeholders participation in the Innovation Process

UIS BUSINESS SCHOOL

MASTER’S THESIS

STUDY PROGRAM:

Master’s in Economics and Administration

THESIS IS WRITTEN IN THE FOLLOWING SPECIALIZATION/SUBJECT:

Business Innovation

IS THE ASSIGNMENT CONFIDENTIAL? No (NB! Use the red form for confidential theses) TITLE: Stakeholders participation in the Innovation Process

AUTHOR(S) Ramon Moreno Marina Doderovic

SUPERVISOR:

Tatiana Iakovleva

Candidate number:

4101

………

4076

………

Name:

Ramon Moreno

……….

Marina Doderovic

……….

University of Stavanger

Master of Business Administration Major Business Innovation

Stakeholder participation in the Innovation Process

July 2018

Ramon Moreno

Marina Doderovic

Abstract

This master thesis aims to study the stages in which startups include relevant stakeholders in their innovation process. The study seeks to contribute and enrich the innovation management literature regarding stakeholder inclusion. It combines existing literature with the RRI field and adds non-economic stakeholders into the mix, with the aim to enhance the innovation management capabilities of Norwegian startups by conducting a research on the members of an organization in the Oslo region.

The findings suggest that innovation is widely accepted and encouraged, it also shows that firms have dynamic capabilities since they are able to reflect, absorb and adapt to some degree their innovation based on stakeholder inclusion but that these interactions focus on primary economic relationships with informal meetings and networking as the main method.

The evidence also shows that most stakeholder interactions are being held at the launch and post launch stages of a new product or service development. The study concludes making an argument for the inclusion of non-economic stakeholders to be done at earlier stages of the innovation process.

Acknowledgements

Throughout the writing of this thesis, a lot of guidance, assistance, support and encouragement from many people were needed and it is our pleasure to acknowledge the valuable input of all of these people who contributed during the entire process of our writing.

We would like first to thank our supervisor, Tatiana Iakovleva, for helping us to formulate the research topic and for her valuable guidance through the duration of our masters and specially for this thesis, her comments and suggestions are sincerely appreciated.

We would also like to thank all the respondents from the startup companies which participated in both the interview and the survey, who in spite of having very busy schedules, took time out and were willing to share information with us. This was very valuable for our research and we are grateful for your contribution!

We are extending our thanks to our families and our friends, but especially we would like to thank our supportive partners for their understanding during our writing.

Thank you all very much!

Table of contents

Abstract ... 3

Acknowledgements ... 4

List of Abbreviations ... 9

1. Introduction ... 10

1.1 Problem statement ... 13

1.2 Structure of the thesis ... 15

2. Theory ... 16

2.1 Innovation management ... 16

2.2 User involvement ... 18

2.2.1 Types of Innovation users ... 19

2.3 Design thinking ... 22

2.4 Agile Methods ... 24

2.5 Responsible Innovation ... 27

2.5.1 Inclusion ... 30

2.5.2 Stakeholders in RRI ... 31

2.6 Dynamic Capabilities ... 33

2.7 Summary of the literature ... 37

3. Methodology ... 38

3.1 Research strategy ... 38

3.2 Research design ... 40

3.2.1 Case description... 41

3.2.2 Context of the study ... 41

3.3 Primary research samples ... 44

3.3.1 Sample: Interview cases ... 44

3.3.2 Sample: Survey ... 45

3.3 Primary data collection ... 47

3.3.1 Interviews with startup companies ... 48

3.3.2 Instrument Interview guide ... 49

3.3.3 Survey ... 51

3.3.4 Instrument survey questionnaire ... 52

3.4 Data analysis ... 53

3.4.1 Familiarization ... 53

3.4.2 Thematic Framework ... 53

3.4.3 Indexing ... 54

3.4.4 Charting ... 54

3.4.5 Mapping and Interpretation ... 54

3.5 Quality of Analysis ... 55

3.5.1 Validity ... 55

3.5.2 Limitations of the research methodology ... 58

3.6 Ethics ... 58

4. Description of the organization: Oslo International Hub and Nordic Angel Program ... 59

4.1 Oslo International Hub ... 59

4.2 Nordic Angel Program ... 59

5. Empirical findings ... 62

5.1 Sub-research Question 1: Who are the stakeholders typically invited to participate in the process? ... 62

5.1.1 Interviews ... 62

5.1.2 Survey ... 65

5.1.3 Summary ... 67

5.2 Sub-research Question 2: At what stage of the innovation process do stakeholders participate? ... 68

5.2.1 Interviews ... 68

5.2.2 Survey ... 69

5.2.3 Summary ... 73

5.3 Sub research Question 3: How does stakeholder inclusion relate to absorption and adaption of knowledge? ... 74

5.3.1 Interviews ... 74

5.3.2 Survey ... 77

5.3.3 Summary ... 79

5.4 Sub-research Question 4: How does stakeholder inclusion relate to innovation capability of the firm? ... 79

5.4.1 Interviews ... 79

5.4.2 Survey ... 81

5.4.3 Summary ... 83

6. Analysis and discussion ... 84

7. Conclusion ... 92

8. References ... 95

9. Appendix ... 107

Appendix 1: Interview guide ... 107

Appendix 2: The survey ... 108

List of figures

Figure 1: Overview of research question based on the innovation process ... 14

Figure 2: Structure of the thesis... 15

Figure 3: Type of user innovation ... 19

Figure 4: Design thinking process ... 23

Figure 5: Basics of Agile innovation ... 25

Figure 6: RRI diagram from the RRI Tools project ... 29

Figure 7: Adaptive capability ... 34

Figure 8: Phases of the research design. ... 41

Figure 9: Oslo region 2008-2020 Innovation development plan ... 43

Figure 10: Innovation leaders in Europe ... 44

Figure 11: Number of employees in survey respondents ... 46

Figure 12: Business activity survey respondents ... 46

Figure 13: Overview of survey response date, rate, total responses and time taken ... 51

Figure 14: Business Angel program ... 60

Figure 15: Business Angel program timeline. ... 61

Figure 16: Stakeholder inclusion in the innovation process ... 66

Figure 17: Stakeholder inclusion selection, invitation and information management ... 67

Figure 18: Stages of stakeholder participation of start-ups in the context of responsible innovation .. 88

Figure 19: Recommended stages of stakeholder participation in the context of responsible innovation ... 89

List of tables

Tabell 1: Agile methods methodology ... 26

Table 2: Interview company profiles ... 45

Table 3: Profile of companies in the survey ... 47

Table 4: Informants profile ... 49

Table 5: Interview questionnaire guide ... 50

Table 6: Survey questionnaire ... 52

Table 7: Importance of stakeholder’s involvement in the innovation process ... 66

Table 8: List of stakeholders in the early stage ... 69

Table 9: The importance of stakeholders at the idea stage of the innovation process ... 70

Table 10: The importance of stakeholders at the detail design stage of the innovation process ... 71

Table 11: The importance of stakeholders at the testing stage of the innovation process ... 71

Table 12: The importance of stakeholders at the Launch stage of the innovation process ... 72

Table 13: The importance of stakeholders at the post launch stage of the innovation process ... 73

Table 14: Tools used for external stakeholder involvement ... 77

Table 15: Engaging stakeholders ... 78

Table 16: Methods used to reach stakeholders ... 80

Table 17: Adaptive capabilities of startups ... 81

Table 18: Startups innovation capabilities ... 85

Table 19: Stakeholder’s inclusion ... 86

List of Abbreviations

3D Three dimensional

3G Third generation

4G Fourth generation

ABS Antilock braking systems AI Artificial intelligence

AM Agile methodology

BAN Business Angels Norway

CEO Chief Executive officer

EU European Union

FB Facebook

FEI Front end of innovation phase IOT Internet of things

NAP Nordic Angel Program

NGO Non-governmental organizations

NPD New product development

OIH Oslo International Hub R&D Research and development R&I Research & Innovation

RI Responsible innovation

RRI Responsible research and innovation

SD Software development

TCI/IP Transmission control protocol/ Internet protocol Wi-Fi Wireless networking technology

1. Introduction

Defining a product/market entry strategy is a crucial step in the creation of a company, such is the case in the creation of a startup. Although no official definition they can be described as a newly created entity aspiring to grow fast within uncertainty (Halle & Ruel, 2016).

These young companies (usually less than 5 years) are often innovative in terms of product, service or business model that they bring to the market and have an aim to scale both in terms of employees and international markets where they operate.

Startups are often introducing significant technological innovations that surpass and challenge those companies that already exist in the market. Since the development of Silicon Valley these often technology driven companies serve as a starting point to measure a country's innovative capabilities and technological advances. Despite this, at the entry stage they face a lack of valuable assets such as experience, reputation, deeper understanding of their customers and brand recognition that the competitors already have, these assets represent a hurdle that startups must overcome (Hashai & Markovich,2017). Within this already competitive economy, startups face a challenging landscape since the nature of their business requires constant innovation and ingenuity. Additionally, technologies that are poised to dictate the future such as AI, blockchain and IOT provide a continuous advantage in the marketplace.

This constant innovation applies as well to their innovation management strategies since in principle they can create a competitive advantage and change a company's positioning. A management innovation represents a starched difference from the traditional principles of managerial practices and processes with the aim to modify the way traditional management is carried out (Tidd & Bessant, 2005). Despite this, not that many companies have a well- defined process that continuously implements management innovation (Hamel, 2016).

Stakeholder inclusion in the innovation process and management of startups is a growing discussion among policy makers as a tool capable of making a differential impact in the development of a product/service and serve as a mean of integrating large groups of people

together such as civil society, legislators, nonprofit organizations and end users. As one famous researcher noted:

“The 21st Century is one of “Managing for Stakeholders.” The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs.

Great companies endure because they manage to get stakeholder interests aligned in the same direction.” — R. Edward Freeman, 1984.

For startups, the participation of stakeholders can serve as a method to develop their service/product and can enhance their value proposition by overcoming legitimacy questions that arise in their development process and therefore ensure a better acceptance and diffusion of their innovation. Within innovation management literature, stakeholder theory points out that managers should involve stakeholders in their decision-making process (Schomberg, 2013). This includes a group or individual that can be affected or affect the welfare of the company (Jensen, 2001). They can be classified as internal or external groups and as economic and non-economic actors (Blok et al, 2015). Internal stakeholders represent those internal to the organization such as shareholders and employees. The external stakeholders are the social and political representatives such as governments, communities, policy makers, special interest groups, competitors, NGOs, consumer advocates, the media and environmentalists, (Maines da Silva, Bitencourt & Iakovleva, 2019).

Within innovation management literature, stakeholder inclusion has been studied for decades.

Since Freeman (1984) who introduced it as a combination of management principles, stakeholder theory has changed and is used today to analyze different scenarios in non-profit organizations, small firms, public sector among others (Imre, 2016). The need for stakeholder theory to be more inclusive and dynamic was made aware by different scholars (Fassin 2008;

Beaulieu & Pasquero 2002; Flak et al. 2008 Lamberg et al. 2008;), this paved the way for methods such as design thinking, agile methods, dynamic capabilities among others to become more mainstream within innovative companies and innovation management literature. Nevertheless, these studies have been mainly focused on economic stakeholders.

Thus, empirical research on stakeholder participation in innovation management specifically in startups remains narrow.

Others within academia stressed the need for stakeholders to be more included in the research and argued that their contribution hasn’t been analyzed enough as an important part of the innovation development process. Owen (2012) described how research and science need to be held more accountable and by this a new approach to research defined as Responsible Research Innovation gain traction among academia. This new perspective of RRI calls for a wider society inclusion of both economic and non-economic stakeholders, it’s aim is to find mechanisms that include the general public into scientific developments and involve them in grand societal changes. Its relevance as an instrument for policy making was further defined in Brussels in 2011 at the Directorate of General Research when it was included on the discourse and ultimately an expression of intent to integrate RRI portrayed its momentum and the fact the policy makers understood the importance of the relationship between science and the wider society (Owen et al, 2012). The 4 pillars or so-called dimensions of RRI are anticipation, reflexivity, inclusion, and responsiveness (Stilgoe et al., 2013). The inclusion dimension will be the focus of this study, using it to measure the performance of the startups that participated in the research.

Therefore, an analysis of stakeholder inclusion in the innovation process in the Oslo region of Norway will be presented with the purpose of understanding how startups reach to stakeholders and how their inputs contribute to their decision making. The researcher’s objective is to enrich the innovation management literature and specifically stakeholder inclusion by combining it with the RRI field and adding non-economic stakeholders into the picture. It is also the aim that similar projects can be undertaken to further develop the innovation management capabilities of Norwegian startups.

1.1 Problem statement

Stakeholders are any group or individual be affected or affect the fulfilment of the goals of an organization (Maines da Silva, Bitencourt & Iakovleva, 2019). Therefore, stakeholder inclusion can be defined as the set of practices an organization takes on with the aim to involve stakeholders in a positive way (Greenwood, 2007).

Stakeholder inclusion has an important role in determining the viability of a service/product and it’s fit to a market. Additionally, depending on the stage of the innovation process that the input of a stakeholder is considered, it can potentially lead to a change of course in later stages of the process such as in the market launch stage. This can have many implications in the development of a successful startup, because if they are reaching stakeholders too late this translates into additional time, resources and lost revenue. Despite this, there is little empirical evidence that can decisively demonstrate: 1. Who are the agents that orchestrate stakeholder’s inclusion? 2. When stakeholders participate? 3. How stakeholders inclusion contributes to the innovation process and what kind of innovation? 4. Who are the stakeholders typically invited to participate in the process? (Maines da Silva, Bitencourt &

Iakovleva, 2019).

Startups due to their innovative nature represent an ideal business where valuable data and insights can be obtained in order to understand the market and better adapt to a competitive an innovation driven economy. However, within stakeholder theory the prevailing research is based upon for the most part larger and established firms (Halle & Ruel, 2016). Then we can foresee an opportunity to contribute to the stakeholder inclusion discussion by conducting a research within economic and non-economic stakeholders.

In this sense, this master thesis aims to understand the stages in the innovation process that startups in the Oslo region include stakeholders. To achieve this, an organization was approached to conduct research on its members. This allowed a concrete analysis of how startups in this region operate regarding inclusion of stakeholders and the stages of the innovation process this is taking place.

The research question for this study is the following:

How stakeholder’s inclusion contributes to the innovation process?

The question places at the center of the research the stakeholders by breaking down how and in which stage of the creation of a new product or service they participate. Additionally, it acknowledges the fact that the Innovation process consists of 5 stages: outline concept, detail design, testing, launch, post launch and that by understanding in which stage of these processes startups are reaching to stakeholders, these companies can develop products or services that reflect the needs of the market (Tidd & Bessant, 2014). Figure 1 is used as a base for this research by showing the stages of the innovation process which the research question will be based upon.

Figure 1: Overview of research question based on the innovation process

Outline concept Detail design Testing Launch Post launch

The following sub questions have been formulated in order to address the above research question:

1. Who are the stakeholders typically invited to participate in innovation process?

2. At what stage of innovation process do stakeholders participate?

3. How does stakeholder inclusion relate to absorption and adaption of knowledge?

4. How does stakeholder inclusion relate to innovation capability of the firm?

1.2 Structure of the thesis

This master thesis is divided into seven chapters with its corresponding subsections. The structure of the thesis is shown in Figure 2 in which an introduction to every chapter precedes the core content.

Figure 2: Structure of the thesis

01

Background Problem statement Research question Structure of the thesis Outline

02

Dynamic capabilities Summary

03

Research strategy Research design

Primary research samples Primary data collection Data analysis

Quality of analysis Ethics

04

organization: OIH and NAP Oslo International Hub Nordic Angel Program

05

Sub-question 1 Sub-question 2 Sub-question 3

Sub-question 4

06

Analysis Discussion

07

Summary of findings Contribution to theory Limitations

Future research

2. Theory

The following theoretical framework has been divided into six parts. First, we will define innovation management with a focus on user role in innovation management. Afterwards, we will explain and explore different methods that involve stakeholder inclusion such as user involvement, design thinking, agile methods, responsible innovation and dynamic capabilities. This will give a theoretical framework to support the research and serve as the main body of literature. Finally, a summary of the literature will be presented with a brief comment on stakeholder inclusion and innovation management theory moving forward.

2.1 Innovation management

Today we talk about innovation more than ever. Bringing to discussion the term innovation and how to manage innovation is something that is omnipresent these days and tremendously important for staying competitive in the market. It has been used a very broad definition of innovation, but from an economic perspective, we can agree that innovation is developing solutions that meet customer needs and builds new markets (Tidd & Bessant, 2015), while bringing benefits for the organization and making significant contributions to society.

Nowadays, various practices of innovation management play a crucial role in different industries and sectors. Common challenges and more often high rate of failures of innovative projects are at the top of the list of concerns for both industries and academics. The main reasons that influence the success of a project are ¨stakeholders influential attributes and more importantly, their understanding and effective utilization¨ (Rajablu, Marthandan &

Yusoff, 2014). In this study, we will discuss stakeholder theory combined with innovation management and with a few of complementary concepts, such as: user involvement, design thinking, agile methods, responsible research innovation and dynamic capabilities in order to better understand how essential stakeholder’s inclusion is in managing innovation and especially at what stage of the innovation process they should be included.

The concept of innovation management uses as a base some ideas proposed by the Austrian professor of political economy Joseph Schumpeter (1934), who emphasized innovation as a necessary factor for an economic growth. By definition, ¨Innovation management raises the interest of different actors in the field of management such as academics and practitioners ¨ (Gariggos, Igartua & Peiro, 2018). According to Birkinshaw, Hamel & Mol, (2008), management innovation could be defined as the invention and implementation of a managerial technique, process, practice or structure that is new and is conceived to further implement the goals of the organization.

This and many other definitions of innovation management show that it is possible to see slightly different concepts, but a very unique and simple explanation would be that innovation management is changing in terms of what managers do and how they do (Hamel, 2006). According to Julian Birkinshaw (2015), a British academic, innovation management has the task to help companies to organize and structured themselves in a more effective way.

An essential part would mostly be in focusing how employees can become more productive, more engaged and more empowered, while they are working hard on innovative ideas.

In the article ¨The why, what, and how of management innovation¨ by Gary Hamel (2006), it has been emphasized the question why the management of innovation is important and how can organizations learn to beat the competition and become management innovators.

Showing different examples of some of the most famous brands and companies in the market, he has presented management innovation as the secret to success. By discussing how to become a management innovator, he is proposing commitment to an important problem in management. “The bigger the problem, the bigger the opportunity for innovation. While big problems don’t always produce big breakthroughs, little problems never do.” (Hamel, 2006).

In managing innovation, an important task is to develop the appropriate list of stakeholders and incredibly valuable is that they are involved from the ground up. An early, effective engagement key stakeholders help to capture and maintaining core business value and to build a cohesive vision for the future. A wide range of studies (see Freeman 1984;1994, Blok et al. 2015), suggest that understanding the potential impact of stakeholders and how actually

both internal and external stakeholders are influential in every innovation process is of the essence. Stakeholder early inclusion and generally the focus on stakeholder satisfaction leads to better performance outcomes and can be considered as the key factor for competitive success.

2.2 User involvement

Many researchers agree that the 21st century faces a huge scale of innovation failures.

Deficiency of a customer-centric oriented companies to identify and meet real user needs and factor of general market orientation, can be considered as a common cause of the high innovation failure rate (Leary & Kaulartz, 2019). The users represent an important asset in the process of innovation, and they represent a rich source of innovation. Getting closer and focusing on the customer at their ground level would be one of the key lessons for every successful innovative company. The user often is ahead in terms of innovation, early prototyping and experimenting are mostly due to their needs and frustration which in time become mainstream innovations (Tidd&Bessant,2014).

Lego is an excellent example of user involvement and successful collaboration with customer communities. Through the Lego Ideas platform, it is possible to submit your ideas together with photos or 3D rendering and all Lego Ideas members can vote for its favorite idea. All proposed projects stay In Lego Idea site and is available for voting up to two years, where the project needs to get 10 000 votes in order to be accepted and realized. After 10 months of realization, this is exactly the way how mini Lego of the popular American comedy television series “The Big Bang Theory” was launched to the market. All the products developed on supporter’s proposal are under ‘’Lego Ideas’’ label and the members who originally designed the idea receive financial reword - 1% of the net revenue on the sales product. (Schlagwein & Bjørn-Andersen,2014).

Like Lego, an American company named The Dial Corporation introduced Henkel Innovation Partnership Program, encouraging potential partners, either with completely new ideas or with solutions to already existing challenges in their corporation, to be a part of their

innovation network. In their web site they wrote that user, together with other stakeholders, plays a very important role in their R&D strategy, saying that universities, research institutes, suppliers and customers are very important external partners in developing their products.

2.2.1 Types of Innovation users

In the next sub chapter, we will look at the different types of user innovation. By classifying the users, we are able to compartmentalize their contributions to the innovation process and determine the type of user that is suitable to the development of the startup’s innovation. In this sub chapter we briefly examine the three leading types of innovation users (crowdsourcing will not be discussed in our paper) within user involvement theory as shown in Figure 3.

Figure 3: Type of user innovation

Source: Tidd&Bessant, 2014

Lead users

The term ‘lead users’, was coined by Eric von Hippel (1986) over 30 years ago and since then this method helped many companies to make a remarkable innovation success. The idea behind this approach is - “if one works with innovative customers, then innovative product ideas are the result’’ (Cooper and Edgett, 2008). From Von Hippel’s point of view, lead

Co-development Lead-users

ethnographic design

Demographic innovation crowdsourcing

Extreme users Few users, close relationship

Many users, loose links

users are users who already have requirements that will become general in a marketplace in the future.

Furthermore, Von Hippel (1986) also proposed 4 steps in order to lead users market research conduction:

1. Identify an important trend by bringing solutions that will be required in the future.

2. Identification of lead users who were leading the trend in terms of need and experience.

3. Analyze need data from lead users

4. Project the need data from lead users into the desired market

Lead users are users whose demands for new requirements will become regular in the marketplace in the future (Urban & Von Hippel, 1986), but generally and by Von Hippel (1986) research, lead users adopt innovation earlier than regular users on average seven years.

Extreme users

’’The users in the toughest environments may have needs which are at the edge- so any innovation solutions which meets those needs has possible application back into mainstream.’’ (Tidd & Bessant.2018, p.213).

This method of extreme users as innovator is based on strong believes that companies and generally market can learn a lot from consumers whose needs and requirements lie outside of mainstream customers. Very often, ‘customer pains’ that are discovered through extreme users are usually ‘pains’ of the majority. What makes an extreme user so valuable is the fact that they have an own experience as a proof. There are many examples how extreme users uncovered brilliant innovations and some of them we will mention bellow.

Alexander Graham Bell was a well-regarded teacher of speech, he had the desire to improve the lives of deaf people and to help them better integrate in the society. So, 1872 he invented the telephone which used light to transmit a sound. His primary idea was that deaf people use this device in a way they could “see” the sound of the words (The Washington post, 2017).

His ingenious invention was driven by satisfaction of deaf pain points, but very soon many Americans owned telephones in their houses, and this stayed in history as a breakthrough innovation.

In a different way, but again a similar story is how the first e-mail protocol has been developed. A gentleman named Vint Cerf and his wife have had hearing disability and communication, and both was frustrated, and he believed that electronic letters could help. In the early 1970s, Vint Cerf came up with the TCP/IP protocol regulating how internet traffic goes which makes: world wide web, WIFI, 3G, 4G and e mails possible. Vint Cerf , known as ¨the designers of the architecture for the internet¨ is today's the vice president in Google and in many interviews points out that the technological design he made was reflected and shaped by his own hearing disability and the disabilities of people close to him (Solsman, 2017).

In order to solve the problem that airplanes had with braking and to keep them safe, the development of antilock braking systems (ABS) would be an additional example of extreme users. The ABS braking was developed to prevent turning and to retain the steering control during breaking. This innovation was adapted and today it is commonly used in the automobile industry (Von Hippel, 2005).

All of these examples are just among the countless cases showing how extreme circumstances that are not often into consideration can give a completely new perspective of innovations.

Co-development

Until recently, a firm-centered concept where users have a lesser role in the process of innovation was the more common approach, but very fast this traditional thinking was replaced by methods where innovation driven by networks of individual users (among the

other methods of user involvement) creates a unique value for both – the social value for users and commercial value for the companies. A co-development method presents one more additional concept stressing the increasing importance of customer-oriented mindset in order to better discover and fulfill the needs and value of the customer.

By allowing customers to be more active in the innovation process firms can increase their profitability and growth (Von Hippel, 2005), simultaneously enjoying the benefits associated with competition among the various competitors. This emerging co-development paradigm illustrates a vital role of users in developing a product. Many studies have shown the customer's capability of shaping a new product with a very little (or if any) help from firms (OHern & Rindfleisch, 2010). Increasingly, the form of co-development between firms and customers brings a new way of thinking in the promotion of value co-creation and the control firms have on the innovation process (Bessant, 2015).

2.3 Design thinking

The methodology of design thinking has been widely used as a tool to generate the process of innovation and recently gained a lot of attention. Design thinking is a human-centered based approach and very supported by multi-disciplinary teams. It has been more and more used in the information technology communities, management and especially in the business- where the approach ultimately fits in all types of business ideas – whether characterized as a product-based business or as a service-based business (Müller-Roterberg et al.2018, Van Reine, 2017; Bakic & Husgafvel, 2015). In many companies, this approach is applied in R&D departments as a part of their strategy to foster innovative thinking. Design thinking emphasizes a multidisciplinary pool of expertise from a very different field such as social science, design, engineering and business. ¨Blanding art, craft, science, business savvy¨

(Brown T, 2008), design thinking aims to develop a new user experience and to adjust a product to the new market trends, where developed solutions are always design considering customers’ needs and market opportunities.

As a founder of IDEO – a global design and innovation company and as a founder of the d.school at Stanford University, David Kelley has been successfully used design thinking for nearly three decades. Using the methodology of design thinking as shown in Figure 4, he aims, as he indicated, to unlock creative confidence and creative potential in everyone - from students to business executives. (IDEO.com; Kelley & Kelley et al. 2013).

Figure 4: Design thinking process

Source: Stanford. school

Embracing design thinking in the process of innovation has given rise to enormous numbers of innovative product, system and services. Designing the first mouse for Apple, the first laptop, many different high-tech medical equipment, developing a 3.5 ton mechanical orca whale for the movie ¨Free Willy¨ and having a strong focus on encouraging ¨creative confidence¨ and collaborative help within the company, IDEO has been placed among the most influential product development companies in the world. Tim Brown (2008) the president and CEO of IDEO, describes design thinking as a very valuable competitive asset that uses the designer's sensibility and methods to meet customer’s needs “with what is technologically feasible and what a viable business can convert into consumer value and market opportunity”.

Bjogvinsson et al. (2012), argue that the process of design thinking should be seen as a collaborative effort between various participating stakeholders and their diversified competences included in the design process and where simultaneously ideas need to be

¨envisioned, ¨prototyped¨ and explored in a hands-on way, tried-out early in a way characterized by human-centeredness, empathy and optimism¨ (p.101). Approaching stakeholders and engaging them to become a part of designer’s communities has been considered as a key task for designers and designer communities. Characterized by human centeredness, this concept encompasses the inclusion of the users as a stakeholder in the outcome as an elementary component of design thinking. Design thinking helps in creating solutions and stakeholders are an integral part of the process. “Those affected by a design should have a say in the design process’’ (Binder et. al, 2012).

2.4 Agile Methods

The term agile software development was introduced in 2001, when the Agile Manifesto was declared, as a response and alternative to the inflexible traditional software development process, known as ¨waterfall model¨. The methodology of waterfall model was problematic due to long lead times and many decisions made in the beginning of a project could not be changed later. Agile is exactly what software engineers were frustrated about the SD traditional software development: ¨an interactive and incremental development, where requirements can be changed according to customer needs¨ (Sharma, Sarkar & Gupta, 2012).

The new era of global flows is here, and it is well known that companies today are facing unpredictable and rapidly shifting business environment due to the strong impact of globalization and digitalization progress. Software development is among major challenges form of innovation in nearly every element of business (Rigby, Berez, Caimi & Noble, 2016). In order to respond quickly to changing market requirements and customer perceptions and knowing how Information technology changes the way companies compete, agile innovation methods can be considered as a powerful tool for stakeholder engagement and better collaboration between them. The agile methodology, illustrated in Figure 5,

turning digitalization into a driving force as its important driver and tool for successful business and implementation of agile methodology is without doubt vital to innovative companies. All these facts are showing that there is a close connection between agility, innovative ability and the degree of digitization of companies (Eschberger, 2018).

Figure 5: Basics of Agile innovation

Source: Rigby, Berez, Caimi & Noble, 2016

There are many potential problems that innovation processes face and where agile methodology could bring solutions. Tidd (2006) pointed out that ¨One of the key problems in managing innovation is to make sense of a complex matter. Other researchers such as Hannola & Friman, (2013) in the article ¨Application of agile methods in the innovation process¨, analyzed the applicability of agile methods for improving the innovation process, analyzing software development processes as well as innovation processes. Considering innovation divided into three areas (Koen et al., 2002): FEI- a front end of innovation phase, NPD- new product development and commercialization activities, they agreed with Apilo et al. (2007) that some of the central of innovation problems involves: communication problems, fixed specifications, changing customer needs and expectations, knowledge transfer, bureaucracy and know-how between all the different stakeholders involved. In the following Tabell 1, it has been summarized what are solutions and tools that agile methodology possesses in solving innovation process problems.

Tabell 1: Agile methods methodology

Source: Hannola, Friman, Niemimuukko, 2013

In the article “Agile software development methods: Review and analysis”, Abrahamson et al. (2002) indicated when the software development method is an agile one and that would be in the cases when is: incremental (small software releases, with rapid cycles), cooperative (customer and developers working together with close communication), straightforward (easy to learn and modify), and adaptive (able to change at the last moment). The main premise in agile methods is that less planning is required, faster development time, the tasks are split into small increments and teams are working closely with customers (highest priority of customer satisfaction), creating a high value product in a cost-effective way. Many agree that AM brings benefits in terms of productivity, performance, faster time cycles, risk analysis and provides several improvements regarding to organizational practice that could be applied for improving the efficiency of the innovation process (Sharma, Sarkar & Gupta, 2012; Kettunnen 2009; Hannola & Friman 2013).

In the previous section, the innovation management literature has been discussed, but we would like to assume that we still feel some limitations, mostly considering the critical issues regarding to stakeholders’ inclusion. An argument can be made that the methods as the ones discussed allow for inclusion but does not allow for the inclusion of non-economic

stakeholders thus, hindering the ability to test for ¨responsibility¨ of the solution to a wider society. In agile methods and design thinking and generally in the innovation literature, researchers have focused on economic stakeholders (where consumers and users involvement hold an outstanding place), as well as on value chain for business.

In order to assess the dimensions of the innovation in terms of social and ethical levels, RRI literature calls for a broader stakeholder inclusion with both economic and non-economic stakeholders (Maines da Silva, Bitencourt & Iakovleva, 2018; Blok, Hoffmans &Wubben, 2015)

Dealing with these concerns, the next section is seeking to extend discussion on RRI as an important part of our discussion.

2.5 Responsible Innovation

The idea of responsibility is originally thought at taking on risk and the avoidance of potential negative outcomes. Responsibility is as described by Rhodes (1996, p. 652) as “a new way process of governing; or a changed condition of ordered rule; or the new method by which society is governed”.

Science, technology and innovation face many challenges. In a globalized world and were scientific facts and assertions are often challenged depending on political and socio- economic circumstances, scientists face an increased sense of urgency to find methods that make science relatable and includes the wider society in the many challenges humanity is facing, by answering questions such as: What type of innovation we want? What's the purpose of this innovation? What kind of governance do we want? and How can we include the society as a whole? In essence, how do we find methods that can make the innovation and scientific development process more inclusive and responsible. The concept of Responsible Research and Innovation (RRI) can answer such questions and can be considered as a method that can greatly influence the current science and innovation governance.

Responsible Research Innovation (RRI) is a process in which societal actors and innovators are responsible in a clear and inclusive process for each other by considering the society ethical needs into the innovation process and policy making (Von Schomberg, 2011).

Furthermore, RRI is a method capable of assessing and anticipating the potential impact and expectation from society that research and innovation can have, this with the aim to foster an inclusive and sustainable scientific research (European Commission, 2019). In this sense, RRI can be considered as an instrument capable to actively include the different actors in a society into the innovation process, therefore involving them in the challenge’s humanity is facing. By developing a method that can manage the important relationship between science and society it can avoid difficulties and misunderstandings that the lack of social acceptability of a scientific project may bring, it can achieve this by understanding and including the different stakeholders involved in the project (Owen et al., 2012). Considered as a more inclusive method to governing science, RRI opens the role of research and innovation to all societal actors, therefore acquiring an important role in educating future generations (Burget, Bardone, Pedaste, 2016). Thus, RRI theory argues for including of broader stakeholder group, both economic and non-economic.

The concept isn't new, similar references can be traced back over a decade ago (see Hellstrom, 2003; Owen et al 2009; Von Schomberg, 2011), It’s relevance started in 2011 when the European Commission decided to include it in their main tool for innovation funding Horizon 2020 (Owen et al, 2012). RRI has a wider focus since its aim is to implement a wider innovation policy (Stahl, 2013). Thus, RRI argues for better collaboration between R&D, innovation and society.

The European Commission has classified six elements within RRI as shown in Figure 6, public engagement, science ethics, science education, gender equality, open access and science governance. Additionally, these six elements within RRI have four dimensions in its framework: anticipation, inclusion, reflexivity and responsiveness (Stilgoe et al., 2013).

Figure 6: RRI diagram from the RRI Tools project

Source: Athena Institute, Free University of Amsterdam

Anticipation: Considers contingency and foresight. Discuss possible and desirable futures norms (Stilgoe et al., 2013).

Reflection: Relates to the awareness regarding the limits of knowledge and that the context of an issue is not an universally held line of thought. Furthermore, it analyses theories and value systems that form the basis for the norms regulating research and innovation (Stilgoe et al., 2013).

Inclusion: Public involvement, e.g. deliberative forums, focus groups, multi-stakeholder partnerships, involve social constituents’ norms (Stilgoe et al., 2013).

.

Responsiveness: Changes direction by responding to stakeholder’s opinion and the values od the public. Additionally, it responds to the emergence of new perspectives and knowledge and norms (Stilgoe et al., 2013).

Therefore, RRI requires the involvement of different societal actors with different backgrounds and areas of interest or expertise all working together with the goal to find the solution to a problem. We can catalog research and innovation as responsible when policy agendas aimed at specific outcomes are met. The aim of RRI is to share the responsibility of our future with all stakeholders involved with the expectation that in this process we end up with a more sustainable R&I outcomes.

In the next two sub chapters we will explain the dimensions of RRI focusing for the purpose of this thesis on the inclusion dimension and to add to the knowledge we already have from Innovation management theory we will analyze the stakeholder’s inclusion from the RRI perspective.

2.5.1 Inclusion

According to Stilgoe (2013), new forms to enhance public engagement need to be developed and move to a type of policy that considers this engagement. He also argued for this public engagement to include actors with different backgrounds and that can engage in a diverse and continuous dialogue with the aim to enhancing the discussion and our knowledge (Stilgoe et al., 2013, p.1572). As he eloquently wrote:

“The politics of science are subtle. There are questions about the science needs and the science we want; questions about uncertainty, evidence and burdens of proof;

questions about ownership, access and control. We need to learn how to open up and debate these questions in public.” - Stilgoe, 2013

RRI argues for inclusion within the research process both for social and ethical reasons. The RRI inclusive dimension focuses mainly on citizen participation and societal aiming to redefine the conventional top-down framework that prevails and instead advocates for an inclusive one with a horizontal structure. Specifically, the inclusion dimension calls for scholars in the fields of development, recoupling, social justice and science & innovation to

change the way science policy is carried out to unify the somewhat fragmented discourse that as a scientific community persists (Smith, Fressoli &Thomas, 2014; Stirling B, 2016).

The concept of inclusion of different actors in a set of processes remains vague and because of this it's important to highlight and put a focus on equity and influence as part of what inclusive innovation and RRI are. Since the relationship between science and society is often marked by unequal power relations, the more powerful actors with conflict of interest are often heading t the decision-making. A mechanism that calls for the people's right to employ and articulate their decision is then an optimal goal in any inclusion-based method (Dryzek, 2009). In the next chapter we will explain who are the stakeholders that can participate in the inclusion dimension.

2.5.2 Stakeholders in RRI

Stakeholder inclusion, the most discussed dimension of RRI, has gained a sustained interest for many project leaders and management professionals. Its main predicament is that in order to guarantee a successful development of a project, all relevant stakeholders must be approached to include their interest and opinions.

The concept of RRI relies on the inclusion of stakeholders. Many researchers have relied in defining the inclusion of stakeholders as “participation of interest groups such as community representatives, businesses. government authorities, politicians, organizations and civil society that engage in a planning or decision-making” (Hauck et al, 2016). Inclusion has been considered as the most discussed dimension for fostering RRI, where inclusion refers to

“visions, purposes, questions and dilemmas to broaden the collective deliberation though processes of dialogue, engagement and debate, inviting and listening to broader perspectives of audiences and diverse stakeholders. (Owen et al. 2013)

There are two main ways to classify stakeholders: internal and external, while they further can be classified as economic and non-economic. Furthermore, while innovation

management theory focuses more the user and customer involvement side, RRI literature goes for a wider goal by arguing for the inclusion of economic and non-economic stakeholders (Maines da Silva, Bitencourt & Iakovleva, 2018).

Findings by many researchers indicate the need for better understating the important role of stakeholder’s inclusion in the innovation process. Rodriguez-Melo and Mansouri (2011) described the stakeholder’s inclusion as a decisive factor that helps to increase managers awareness, thus making the law to be implemented and in consequence making sustainability appealing to potential clients. RRI emphasizes multi-stakeholder’s participation to help disseminate knowledge, resources, expertise and knowledge but concerns regarding who to involve, which stage of the innovation process this should be done and whether the stakeholder chosen is representative (Maines da Silva, Bitencourt & Iakovleva,2018), still remains as a subject to a deeper analysis. Furthermore, and according to their findings, one of the main challenges is that stakeholder mostly participate in the final stage of innovation - post lunch phase, what leads to unnecessary reworks and cost overruns. Neglecting to engage key stakeholders from the early stage of the innovation process causes limited reflection on stakeholder inputs and constrictive discussions, considerably increasing the chances of innovations fail.

Nevertheless, there is a need for the stakeholder’s inclusion in the innovation process as early as possible, as an effective way to identify stakeholders and to determine and meet needs of those stakeholders. Therefore, the most critical and important part within stakeholder theory in RRI is the identification and inclusion of the stakeholders that can have an important contribution to the innovation development. It is believed that the frameworks examined in this section provide a tool that can be used to properly identify and include all relevant actors in a collaborative and inclusive way.

This chapter focused on the method of RRI and the inclusion of non-economic stakeholders in the innovation process. In order to manage effectively the stakeholder’s inclusion, innovative startups need to ensure routines and capabilities. In this sense, the next chapter

will focus on dynamic capabilities and how by implementing dynamic processes firms to adapt can to new insights from stakeholders.

2.6 Dynamic Capabilities

Dynamic capabilities are considered to be an emerging and potentially integrative concept helping companies to achieve sustainable competitive advantages in increasingly demanding business environments. The term “dynamic” underline that the firms innovative capacity are highly needed in situations when market timing is critical, when they are challenged by rapid rate of technological and digital changes and when is difficult to forecast future performance of competitors and future market requirements (Teece, Pisano & Shuen, 1997). The term capability stresses an important role of strategic management in performing the tasks or activities related to internal and external organizational needs in order to accomplish core functions and properly correspond to requirements of a changing environment (Teece, Pisano

& Shuen,1997).

According to Wang and Ahmed (2007), they refer to the organizations behaviour that is aimed at integrating constantly and to reconfigure resources and capabilities. Most importantly, to develop its core capabilities in order to obtain and sustain a competitive advantage. They argue that dynamic capability emphasizes the process of transforming firm resources and organizational capabilities into product and additionally providing added value to customers, pointing out that this transformation process is based on ¨a swift, precise and creative manner¨ in the line with the rapidly changing market conditions (Wang and Ahmed, 2007). Based on their empirical findings, they pointed out three principal components to dynamic capabilities: adaptive capability, absorptive capability and innovative capability.

These tree complementary factors have huge impact on the performance outcome, and they are important contributors for gaining a competitive advantage over competitors.

Adaptive capability

Adaptive capability can be seen as ¨the organization’s strategic ability to maintain competitive advantage by modifying, reconfiguring or interconnecting resources, capabilities and competences, and seeking to increase the number of options or available strategic reactions in order to adapt quickly environmental changes and generally opportunities¨

(Kaehler, Busatto, Becker, Hansen & Santos, 2014).

Figure 7: Adaptive capability

Source: Hamel, 2007.

As Figure 8 illustrates, adaptive capability emphasizes the capacity to adjust on emerging market opportunity where there is difference between adaptive capability and adaptation.

Wang and Ahmed (2007) describe adaptation as ¨an optimal end state of survival for a firm¨, while adaptive capability keeps focus on exploration and exploitation in organizational learning strategies. Adaptive capability goes often together with new forms of the organization, where there are many examples how companies managed to adapt themselves to changes in market trends followed by strategic flexibility of allocating resources accordingly. The ability to adapt to rapid changes and to be able to line up internal resources and internal efficiency with market demands has been shown as essential part for company’s growth and to keep ahead of the competition.

Possessing high levels of adaptive capabilities would actually lead to high level of dynamic capability (Wang & Ahmed, 2007). Companies may have very different degrees of adaptive

Horizon Scanning (Sense) Innovation

(Respond)

Resilience (Prepare) Organizational learning

(Maturity)

ENVIRONMENTAL CHANGE

● Technological

● Market CHANGE

MANAGEMENT

● Managerial

● Strategic

●Operational

Adaptive Capability

capability and measuring adaptive capability would include different dimensions. Some of key factors of adaptability would be market orientation (Grinstain, 2008), effective and speedy decisions under changing environmental conditions, market monitoring and understanding of customer needs.

Absorptive capability

Absorptive capacity is the organization’s identification, assimilation and exploitation of knowledge (Cohen and Levinthal, 1989). Absorptive capability has emerged as a concept essential to a firm’s absorption of external knowledge. Same as with adaptive capability, different firms have different degrees of absorptive capability, but it has been shown that firms with higher absorptive capability are influenced by stronger ability to recognize that partnerships might be a source for new organizational learning, and generally higher ability to use external information and change it to being “firm-embedded knowledge” (Wang &

Ahmed, 2007).

Based on the literature, Wang and Ahmed (2007) find out that more efficacious adopters compering to less efficacious adopters:

1. Facing uncertainty demonstrate commitment to long term use of resources.

2. Develop first had knowledge by learning from different partners and research experience.

3. Thoroughly analyses the new drilling technology and share information within multidisciplinary teams.

4. Develop and utilize different complementary technologies.

5. Possess high levels of knowledge and skills in areas that can be applied to the new technology.

Innovative capability

Innovative capability or organizational innovativeness is the organization’s ability to develop new product and markets, based on innovative orientation, this can include innovative processes and behavior. Innovative capability is highly needed in attaining competitive advantage and based on many different literature review (Wang & Ahmed, 2007), it is possible to identify five dimensions of an organizational innovativeness: product innovativeness, market innovativeness, behavioral innovativeness, process innovativeness, and strategic innovativeness. These multi-dimensions are component factors of dynamic capabilities and are important in the measurement of the innovative capability of a firm. Bell (2009) stresses that innovation capabilities are those that are needed in the development and implementation new product and process technology and to carry out improvements to those already in use.

Obviously, adaptive capability together with absorptive and innovative capability are the most crucial components of dynamic capability showing how important is to reconfigure a firm’s resources and capability in order to adapt to external changes. These concepts are different, but again all of them are much correlated components of dynamic capability.

Moreover, adaptive capability underlines ability to identify market opportunities, absorptive capability emphasizes ability to absorb external knowledge and innovative capability brings ability to create knowledge and all of these three components are common across many different industries (Kaehler, et al., 2014; Wang & Ahmed, 2007).

Finally, dynamic capabilities are a useful tool that can help to understand and shape different opportunities that arise by enhancing a startups asset (Teece, 2007). In a competitive market a firm’s ability to be dynamic by absorbing knowledge and adapting to changing environments provides a competitive advantage that can make the difference in innovative startups.

2.7 Summary of the literature

We have now discussed different innovation management theories regarding user involvement with an emphasis on stakeholder inclusion. The correlation between the success of startups and the inclusion of stakeholders in their innovation process its emphasized.

Innovation management has a long tradition of highlighting the importance of user’s perspective, thus current theory focusing on the different methods that can assist in identifying and include relevant stakeholders into the innovation process can be used for innovative startups in their development process.

Major questions such as when to include, whom to include and at what stage such stakeholders should be included are partly addressed in these methods, thus served as the basis for the researchers of this study to create the interview guide and the further development of the survey performed. In chapter number three will focus on the methodology used to carry out this study.

3. Methodology

In this section, the research strategy and its process will be described. Also, the framework regarding this type of study and a practical description of the data collection will be presented. There is also an interest to provide a critical evaluation of the approach adopted to conduct the study.

3.1 Research strategy

There are two main research approaches used by scholars: qualitative and quantitative research. For the purpose of this study both qualitative and quantitative research were used to substantiate and to further validate the study. The use of mixed methods focuses on the collection, analysis, and the mix of both qualitative and quantitative data in one study or a series of studies. The use of this method provides a diversified source of information thus leading to a more diversified understanding. When both methods are combined, the qualitative part can provide a wider understanding of the numerical findings in the quantitative part (Gunnell, 2016). This allows to make the argument that using qualitative and quantitative approaches in combination provide a better understanding of research problems than using both approaches alone (Creswell and Clark, 2007, p. 5). The qualitative part can describe a social phenomenon by trying to understand human experience and behavior (Lincoln & Guba, 1985; Yin, 2003). The quantitative part can be used as a confirmatory section of the study and can be used for generalization of the findings in the qualitative part (Lobe, 2008).

Qualitative research is used to better comprehend the motivation behind the answers of the person interviewed. Additionally, it allows to understand the research in question in its natural setting (Yin, 2003) by allowing to find trends or correlations in opinions thus allowing for a deeper analysis (Gunell, 2016). This type of research method can also provide the study an in-depth elaboration of the case in question (Patton, 1990). By using an inductive approach, the researcher analyzes a topic and generates theory propositions